Norfolk Southern Reports Third-Quarter 2011 Results

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Oct 26, 2011, 04:05 ET

NORFOLK, Va., Oct. 26, 2011 /PRNewswire/ --

For 2011 vs. 2010, Norfolk Southern achieved the following records:

Income from railway operations improved 26 percent to $938 million.
Net income increased 24 percent to $554 million.
Diluted earnings per share rose 34 percent to $1.59.
The railway operating ratio improved by 2.1 percentage points to 67.5 percent.

Norfolk Southern Corporation (NYSE: NSC) today reported record third-quarter net income of $554 million, 24 percent higher compared with $445 million for the same period of 2010. Diluted earnings per share were a record $1.59, up 34 percent, compared with $1.19 per share in the third quarter of 2010.

"Norfolk Southern produced another outstanding quarter, setting all-time records for income from operations and earnings per share, while also establishing third-quarter records for net income and operating ratio," said Norfolk Southern CEO Wick Moorman. "We continue to see modest improvement in most of our business groups, and we remain focused on the long-term enhancement of our franchise."

Railway operating revenues of $2.9 billion rose 18 percent compared with the same period of 2010, primarily as the result of a 14 percent increase in revenue per unit.

General merchandise revenues were $1.4 billion, 12 percent higher compared with third-quarter 2010 results. Coal revenues increased 27 percent, to $899 million, compared with the same period last year. Intermodal revenues were $551 million, 19 percent higher compared with the third quarter of 2010.

Railway operating expenses for the quarter were $2.0 billion, 14 percent higher compared with the same period of 2010, primarily due to increased fuel expenses, which rose by $126 million, and compensation and benefits costs.

Income from railway operations climbed 26 percent to an all-time record $938 million compared with the same period last year.

The railway operating ratio improved by 2.1 percentage points to a third-quarter record 67.5 percent compared with 69.6 percent during third-quarter 2010.

Norfolk Southern Corporation is one of the nation's premier transportation companies. Its Norfolk Southern Railway subsidiary operates approximately 20,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal and industrial products.

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Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Income (Unaudited)
		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2011		2010		2011		2010
		(in millions, except per share amounts)

Railway operating revenues:
Coal	$	899	$	709	$	2,608	$	2,034
General merchandise		1,439		1,283		4,191		3,765
Intermodal		551		464		1,576		1,325
Total railway operating revenues		2,889		2,456		8,375		7,124

Railway operating expenses:
Compensation and benefits		736		680		2,240		2,049
Purchased services and rents		403		377		1,191		1,086
Fuel		385		259		1,186		771
Depreciation		217		204		641		612
Materials and other (note 1)		210		190		704		572
Total railway operating expenses		1,951		1,710		5,962		5,090

Income from railway operations		938		746		2,413		2,034

Other income - net		60		81		121		118
Interest expense on debt		114		113		339		347

Income before income taxes		884		714		2,195		1,805

Provision for income taxes:
Current		159		143		345		539
Deferred		171		126		414		172
Total income taxes (note 2)		330		269		759		711

Net income	$	554	$	445	$	1,436	$	1,094

Earnings per share (note 3):
Basic	$	1.61	$	1.21	$	4.09	$	2.95
Diluted	$	1.59	$	1.19	$	4.03	$	2.91

Weighted average shares outstanding (note 4):
Basic		343.2		366.3		349.8		368.5
Diluted		349.0		371.6		355.6		373.8

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited)
	September 30,		December 31,
	2011		2010
	($ in millions)
Assets
Current assets:
Cash and cash equivalents	$	242	$	827
Short-term investments		152		283
Accounts receivable - net		1,029		807
Materials and supplies		212		169
Deferred income taxes		160		145
Other current assets		30		240
Total current assets		1,825		2,471

Investments		2,240		2,193

Properties less accumulated depreciation of $9,351 and
$9,262, respectively		23,978		23,231

Other assets		268		304

Total assets	$	28,311	$	28,199

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	1,329	$	1,181
Short-term debt		-		100
Income and other taxes		221		199
Other current liabilities		331		244
Current maturities of long-term debt		55		358
Total current liabilities		1,936		2,082

Long-term debt		6,782		6,567

Other liabilities		1,788		1,793

Deferred income taxes		7,550		7,088
Total liabilities		18,056		17,530

Stockholders' equity:
Common stock $1.00 per share par value, 1,350,000,000 shares
authorized; outstanding 336,106,217 and 357,362,604 shares,
respectively, net of treasury shares		337		358
Additional paid-in capital		1,912		1,892
Accumulated other comprehensive loss		(753)		(805)
Retained income		8,759		9,224
Total stockholders' equity		10,255		10,669

Total liabilities and stockholders' equity	$	28,311	$	28,199

See accompanying notes to consolidated financial statements.

Norfolk Southern Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
		Nine Months Ended
		September 30,
		2011		2010
		($ in millions)

Cash flows from operating activities:
Net income	$	1,436	$	1,094
Reconciliation of net income to net cash provided
by operating activities:
Depreciation		646		617
Deferred income taxes		414		172
Gains and losses on properties and investments		(30)		(38)
Changes in assets and liabilities affecting operations:
Accounts receivable		(222)		(142)
Materials and supplies		(43)		(15)
Other current assets		60		50
Current liabilities other than debt		402		254
Other - net		101		136
Net cash provided by operating activities		2,764		2,128

Cash flows from investing activities:
Property additions		(1,433)		(907)
Property sales and other transactions		70		81
Investments, including short-term		(88)		(441)
Investment sales and other transactions		246		261
Net cash used in investing activities		(1,205)		(1,006)

Cash flows from financing activities:
Dividends		(432)		(384)
Common stock issued - net		95		59
Purchase and retirement of common stock (note 4)		(1,611)		(437)
Proceeds from borrowings - net		396		250
Debt repayments		(592)		(477)
Net cash used in financing activities		(2,144)		(989)

Net increase (decrease) in cash and cash equivalents		(585)		133

Cash and cash equivalents:
At beginning of year		827		996

At end of period	$	242	$	1,129

Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized)	$	296	$	296
Income taxes (net of refunds)	$	121	$	498

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:

1. MATERIALS AND OTHER

During the first quarter of 2011, NS received an unfavorable ruling for an arbitration claim with an insurance carrier that failed to respond to insurance claims submitted by NS, related to the January 6, 2005 derailment in Graniteville, SC. As a result, NS recorded a $43 million expense for the receivables associated with the contested portion of the claim and a $15 million expense for other receivables affected by the ruling for which recovery is no longer probable.

2. INCOME TAXES

During the second quarter of 2011, the Internal Revenue Service (IRS) completed its examination of NS' 2008 tax return and review of certain claims for refund for prior years that resulted in a decrease in income tax expense of $40 million. Also during the second quarter, three states enacted tax law changes that decreased deferred income tax expense by $19 million.

During the first quarter of 2010, the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act of 2010 were signed into law. Provisions of the Acts eliminated, after 2012, the tax deduction available for reimbursed prescription drug expenses under the Medicare Part D retiree drug subsidy program. Accordingly, NS recorded a $27 million charge to deferred tax expense in the first quarter of 2010.

3. EARNINGS PER SHARE

For basic earnings per share, income available to common stockholders for the third quarters of 2011 and 2010 reflects $2 million each in reductions and $6 million for the first nine months of both 2011 and 2010 from net income for the effect of dividend equivalent payments made to holders of stock options and restricted stock units.

For diluted earnings per share, income available to common stockholders reflects reductions of less than $1 million for the third quarter of 2011, $2 million for the third quarter of 2010, $2 million for the first nine months of 2011, and $6 million for the first nine months of 2010 for the effect of dividend equivalent payments made to holders of stock options.

4. STOCK REPURCHASE PROGRAM

NS repurchased and retired 23.8 million shares of Common Stock in the first nine months of 2011, at a cost of $1.6 billion and 7.8 million shares at a cost of $437 million for the same period of 2010. The timing and volume of purchases is guided by management's assessment of market conditions and other pertinent factors. Any near-term share repurchases are expected to be made with internally generated cash, cash on hand, or proceeds from borrowings. Since 2005, NS has repurchased and retired 103.2 million shares at a total cost of $5.7 billion.

SOURCE Norfolk Southern Corporation